Wednesday, May 04, 2005

Less is more, more or less

Back when newspaper circulation was rising, publishers couldn’t wait to tell you how great that was. Now that it is falling, they want you to know that size really doesn’t matter after all.

In light of the circulation decline at some 70% of the nation’s newspapers – with deeper drops in metro markets – publishers increasingly will start emphasizing the quality, not the diminishing quantity, of their audience.

While they probably should have been doing this since television began eroding readership back in the 1950s, publishers are being forced to get real about the numbers in a hurry because they can’t afford to maintain their artificially enhanced circulation in an era of declining revenues and growing pressure to increase profits.

When I say “artificially enhanced,” I don’t mean circulation figures are fraudulent, through there have been some recent high-profile cases of out-and-out cheating. Rather, I mean to say that circulation figures are substantially higher today than if the industry had not been taking extraordinary measures over the years to levitate them beyond natural market demand.

With competing media today challenging the economics of the newspaper business, the jig is just about up for publishers. But the industry can emerge leaner, meaner and healthier when it finishes the process of right-sizing its circulation.

Although 60% of a typical metro’s circulation consists of loyal subscribers who pay full price, a paper trying to maintain level circulation from year to year is forced to run continuous discount promotions to gain enough “readers” to make up the other 40%. If the newspaper went cold turkey and stopped discounting, its circulation likely would stabilize at about two-thirds of its current audience.

In the good old days, when higher circulation translated directly into higher advertising revenues, publishers could afford expensive promotions to build their subscriber rolls.

Today, of course, newspaper audiences are being fragmented by everything from Yahoo News to iPods, while a variety of print and online competitors are pressuring advertising rates. At the same time, increasingly sophisticated advertisers, who have learned to calculate ROIs and count clicks on the Internet, are demanding proof that their dollars are performing as promised.

Marketers scrutinizing the results of their campaigns use sophisticated, third-party research to learn which media perform the best in motivating their prospects to buy. Scarborough Research, for example, surveys 200,000 people per year in 75 markets to obtain information on 1,700 consumer categories. No matter how much a newspaper spends to beef up its circulation, most advertisers won’t be impressed unless they see a corresponding bump in Scarborough.

Even if money were no object, therefore, it no longer makes much sense for newspapers to spend good money after bad to pump raw circulation. But money indeed is an object for newspapers, which typically are owned by public companies that have to produce steady, reliable earnings growth to increase their stock prices.

With less cash to spend on subscriber acquisition, publishers will be confining such promotions as they can afford to the groups most desirable to Scarborough and the major merchants in their markets. At the same time, their sales pitches, fittingly, will begin to emphasize the quality, not the size, of their audience.

These changes, though healthy, will be challenging, because they profoundly affect the fundamental economics of the business, as well as the careers of people at most levels of the industry.

The transition will be worth it, however, if it results in compelling products that are valuable to subscribers and demonstrably effective for the advertisers appealing to them.

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About Me

Alan D. Mutter is perhaps the only CEO in Silicon Valley who knows how to set type one letter at a time.
Mutter began his career as a newspaper columnist and editor at the Chicago Daily News and later rose to City Editor of the Chicago Sun-Times. In 1984, he became No. 2 editor of the San Francisco Chronicle.
He left the newspaper business in 1988 to join InterMedia Partners, a start-up that became one of the largest cable-TV companies in the U.S.
Mutter was the COO of InterMedia when he moved to Silicon Valley in 1996 to join the first of the three start-up companies he led as CEO.
The companies he headed were a pioneering Internet service provider and two enterprise-software companies.
Mutter now is a consultant specializing in corporate initiatives and new media ventures involving journalism and technology. He ordinarily does not write about clients or subjects that will affect their interests. In the rare event he does, this will be fully disclosed.
Mutter also is on the adjunct faculty of the Graduate School of Journalism at the University of California at Berkeley.